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Saturday, October 18, 2008

Schlumberger earnings climb, but slowdown looms.

Schlumberger Ltd, the world's largest oilfield services company warned on Friday that the credit crisis and softening global economy would dampen energy spending into next year.

The weaker market conditions come on the heels of a quarter when crude oil prices surged to record levels, peaking at $147 per barrel in July.

That helped boosted Schlumberger's third-quarter profit by 13 percent, the company said on Friday, as energy producers spent heavily to capture the high prices. The results met Wall Street expectations.

Since then, both crude oil and natural gas prices have fallen by more than 50 percent, raising investors' fears that energy companies would slash spending on exploration and production projects that are the core business of the oilfield services sector.

Brisk natural gas drilling activity across North America during the quarter helped offset the damage from hurricanes that ripped through the oil and gas operations in the Gulf of Mexico, but gas producers were already beginning to pare back operations.

"The recent rapid deterioration in credit markets will undoubtedly have an effect on our activity though we anticipate this will largely be limited to North America and in some emerging exploration markets overseas," Schlumberger Chief Executive Andrew Gould said in a statement.

A global economic slowdown is an increasing concern. Although it is difficult to forecast how that would affect spending in the energy sector, Gould said, "we anticipate a slowing in the rate of increase in customer spending."

Schlumberger and peers such as Halliburton Co and Baker Hughes Inc had seen steady profit growth in recent years as their energy producing customers spent heavily to pull oil and gas out of the ground and take advantage of a long-term rise in prices.

PROFIT ON TARGET

At Schlumberger, third-quarter net profit rose to $1.53 billion, or $1.25 per share, from $1.35 billion, or $1.09 per share, a year earlier. The results met the analysts' average forecast, according to Reuters Estimates.

Revenue increased 22 percent to $7.26 billion. Analysts were expecting $7 billion.
Operating profit at the oilfield services arm rose 13 percent to $1.7 billion, while the WesternGeco seismic unit, which measures underground oil and gas reservoirs, saw earnings climb 16 percent to $355 million.

Schlumberger said earlier this month that it had yet to see any pullback in exploration and production spending from customers, but it was watching intently for any signs of budget cuts.
With its relatively lower exposure to the struggling North American natural gas market, Schlumberger looks well placed, analysts at Pritchard Capital Partners said. But the company's stock valuation of about 10 times estimated 2009 earnings close is already nearly twice that of rivals.

Pritchard said in a note on Thursday that Halliburton and Baker Hughes offered qualities similar to Schlumberger, but with more attractive 2009 multiples of 5.1 and 5.4, respectively.
Shares of Schlumberger have lost 46 percent in 2008, compared with a 54 percent drop for Halliburton, a 55 percent slide for Baker Hughes and a 52 percent drop in the Philadelphia Stock Exchange oil services index.

Economic crisis of 2008

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Schlumberger
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